18 sources for venture funding

1. Entrepreneur’s Secrets™:
How to Fund Your Venture!
Hicham Zinalabdin
Jan 13, 2014

2. Entrepreneurs

3. What is the “Fund” problem?

4. Why Fund?

5. Funding Source
Key Points
1. Options and Sources can be mixed and matched (No
hard rule).
2. The sequence is recommended based on:
a. Dependencies
b. Benefits and strategy to owner(s).
3. This is about increasing venture’s assets not
optimizing (decreasing) fund needs (like JV, Lean,
MVP, etc.)

6. Funding Source #1
Self
The founder invests time and assets from
savings and residual income. (No-Debt)
Pros
Cons
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3.
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4.
The base for other funding option
Highest ownership to founder
Maximum loss is limited to available
time and funds not liabilities.
Full control.
The easiest to miss manage.
In case of loss, 100% on founder.
Usually limited and not enough.

7. Funding Source #2
Government Grants & Tax Credit
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Available programs in relation to industries, markets, topics, etc.
Requirements (stage, invention, ownership, impact, etc.)
Timeframe (dates and periods)
Expected contribution (%, exclusions, limits, etc.)
Pros
Cons
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3.
4.
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3.
4.
Free Assets
Non-dilutive
Exit info is not necessary
Associated with other resources.
Requires extensive preparations
Might change business practice/model
Takes long time
Not always available

8. Funding Source #3
Donations
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Assets given for social or sympathy reasons.
Meant to be spent only on the advertised reason (although it can be spent otherwise)
Main driver for donors is emotional engagement.
Personal auditing might follow donations
Best combined with crowd funding
Pros
Cons
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4.
5.
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2.
3.
Free Assets
Non-dilutive
Financial information is not necessary.
It can make great marketing impact.
Can be combined with CSR.
Over demanded (abused).
Require social engagement
Needs relatively strong/proper
marketing

9. Funding Source #4
Incubator
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Intangible asset funding at free or discounted price.
Consultancy, space, tools, data, market, support, etc.
Professional incubators, CSR, or Marketing initiatives.
Most incubation opportunities are found by the Entrepreneurs themselves.
Pros
Cons
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2.
3.
4.
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3.
Free or at very low price
Great resource
Can be strategic if with the right firm.
Easy to obtain.
4.
Hidden Supply
The right incubator is hard to find
Incubator’s commitment depends on the
Entrepreneur’s involvement
Industry and culture match
requirements.

10. Funding Source #5
Accelerator
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Intangible + tangible asset funding at a discount or equity share (10-30%) price.
Dedicated to goals achievement with strict commitments between all parties.
Favored by governments (unlike incubators)
Assigns dedicated resources to ventures with direct involvement.
Pros
Cons
1.
2.
3.
4.
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3.
Almost guaranteed to success
Maximizes team production
Connected to huge resources
If Gov. funded, it is free (or minimum
fee)
4.
Demand >>> Supply
Highly conditioned.
Programs are specific to certain
industries and markets.
If privately funded, costs equity.

11. Funding Source #6
Co-Founder
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Joins the venture through co-finding idea, investing time, investing assets, or/&
regulatory obligation adding significant value at the concept stage.
Their share is dilutive.
Co-founders share risks, profits, liabilities, authorities, and decisions.
Ownership % is based on total investment (time & assets) not exit value.
Pros
Cons
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5.
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Strong cofounder adds strategic values
Risk is distributed
Stronger commitment
Increases individual dedication
Doesn’t require salary expenses
3.
4.
Conflicts
If investment plan changes, ownership
split becomes unfair.
Increases decision making complication
Reduces the main founder’s ownership

12. Funding Source #7
Competitions
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Competitions are events aiming to market certain products/services by allowing
entrepreneurs to pitch their venture and award the winners with some prizes.
Focuses on networking and slight idea validation/critique.
Prizes are normally limited to the winners but resources can be available during the
competition.
Pros
Cons
1.
2.
3.
4.
1.
2.
Free Assets (Non-dilutive owners equity)
Networking can be the best outcome
Exposure (in case needed)
Proof of concept in case of winning.
3.
4.
Idea secrecy exposure
Winning criteria includes uncontrollable
and subjective factors
Judgment doesn’t reflect the best idea
(rather best presentation and simple 1)
Not widely available.

13. Funding Source #8
Pre-Sales
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The advance payment of a product/service before manufacturing/conducting it.
Focuses on networking and slight idea validation/critique.
Prizes are normally limited to the winners but resources can be available during the
competition.
Extended examples: Sponsorship,
Pros
Cons
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Increases cash-flow
The strongest source of equity for
venture value and investor’s attraction.
Increases ROE
Maintains a higher share for the owner(s)
Might decrease revenue (sale price).
Delay in delivery.
Applies debt/liability

14. Funding Source #9
Accounts Payable Debt (Non-interest credit payment)
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Depends on market trends and relationship between supplier & buyer.
Credit facility is limited by time, amount, and/or cycle date.
Overseas credit facility is usually governed by bank L/C (litter of credit).
Examples: Salary (due date), electricity, telephone bill (limit & due date),
30,60,90,120,180 days payment terms, etc.
Pros
Cons
1.
2.
3.
1.
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3.
4.
Non-interest debt funding
Normally negotiable & extendable
Exchangeable with other benefits or
threats (sole-supplier or switching)
Good for short periods (or back-to-back)
4.
5.
May Increase prices
Bank facility is not interest free!
Well structured suppliers are hard to
negotiate with.
Its Cycle is short for business cycle
Failure to pay on time might break
relations

15. Funding Source #10
Dynamic Partnership
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It is a partnership with KPI controls.
Partnership can be a percentage, amount, shares, territory, rights, or others.
Long partnership can be managed by interval, delivery, amounts, or fixed conditions.
Pros
Cons
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Just for all parties
Incentivize partners
Leads to accurate time commitments.
Adds security to investors.
Developing KPIs can be complex.
Contracts require intensive details.
Change control can be overwhelming
Such contracts require extensive
knowledge of deliverables and
operations.

16. Funding Source #11
Private Offering
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Dividing the company into shares based on its expected exit value (ExitV=$1M/1M
shares = $1FV/Share) even if actual present value of the venture = $0.
Private offering is not welcomed and restricted in most countries (due to fraud).
Shares are non-dilutive to their owners.
Depends on the integrity and honesty of venture principals.
Pros
Cons
1.
2.
3.
1.
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3.
4.
Non-interest debt funding
Normally negotiable & extendable
Exchangeable with other benefits or
threats (sole-supplier or switching)
Good for short periods (or back-to-back)
4.
5.
Increases prices
Bank facility is not interest free!
Well structured suppliers are hard to
negotiate with.
Its Cycle is short for business cycle
Failure to pay on time might break
relations

17. Funding Source #12
Project Investor
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Dedicated to specific known projects with well defined timing, return, and risk.
A form of temporary partnership (non-debt) with risk and liability sharing.
Normally back-to-back payment with early exit for investor.
Depends on relationships and negotiation.
Pros
Cons
1.
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Short term profit share instead of long
term equity share.
Doesn’t require collateral assets
Risk sharing
Relatively quick to obtain.
Can be expensive
Not regulated.
Early investor’s exit.

18. Funding Source #13
Professional Investors (Angel Investor, VC, etc.)
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Exit is #1 goal for investors. #2 is dividend, & venture team is #1 decision factor.
Highly negotiable depending on the achievements of venture and need for fund.
Expects 30-300% ROI/year depending on the risk and venture readiness.
Business idea has no value. Instead, teams, IP, sales, competitive advantage.
Investment is based on current exit valuation (regardless future expectations).
Pros
Cons
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6.
2.
3.
4.
Short term profit share instead of long
term equity share.
Doesn’t require collateral assets
Risk sharing
Relatively quick to obtain.
Very Expensive if introduced early
Limited to 30-40% of venture value.
Tend to control main decisions.
Culture fit is crucial.
Investor exits first with better options.
In case of problems, they exit with more
damages.

19. Funding Source #14
Retained Earnings
Funding Source #15
Public Offering
Funding Source #16
Credit Card
Funding Source #17
Convertible Debt (Mezzanine, Debt-to-equity)
Funding Source #18
Notes Payable (Risk Interest Based)

20. Facebook.com/makethemaker
@MTM_e
Time to Disagree…
QUESTIONS AND DEBATES
Thank You
Hicham Zinalabdin